What happens if I have a 401(k) and quit my job?

Leaving your job to pursue a new opportunity is exciting. And there’s a lot to consider, including what will happen to your 401(k). Understanding how much you’ll receive and the four things you can potentially do with your retirement savings can help you pick the right option for you.  

Factors that affect how much you'll receive

Any money you put into the 401(k) always belongs to you, but you may not be entitled to any employer contributions when you leave. It depends on whether your plan includes a vesting schedule. If so, how long you worked before quitting will determine what happens to those contributions. For example, if the plan has a three-year cliff vesting schedule and you only worked for two years, you’ll leave with just your money. If you worked three or more years, you’ll get your money, plus 100% of any employer contributions. You can find information about your plan's vesting schedule in the summary plan description, and your employer should let you know how much you’ll receive as part of the offboarding process.    

Four things you can do with your 401(k) money

You also have a choice to make. Will you keep your money in the 401(k), roll it over, or take the cash? Each option has potential benefits and trade-offs that you’ll want to consider. 

1 Keep your money in the plan—This option requires little to no effort on your part. It’s also one way to continue to postpone paying taxes on your savings. But since you’re no longer working for your employer, you won’t be able to make additional contributions. If this option appeals to you, you’ll want to check with your employer. They may not allow former employees to stay in the plan or may only offer this option for accounts that meet a minimum balance requirement.

2 Roll your 401(k) to your new employer—If your new employer allows it, you might consider rolling your money into their 401(k) plan to have all your retirement savings in one spot. This option is another way to continue to postpone paying taxes on your savings. Before going this route, you’ll want to review the plan’s investments and services to make sure they meet your needs. 

3 Roll your 401(k) to an IRA—An IRA rollover can offer similar tax benefits as the first two options, but with more investment flexibility. With an IRA, you’re not limited to a predetermined list of investments. If you decide this option is right for you, you’ll want to shop around to find the financial services firm that offers the investments and services you want at a reasonable price. 

4 Take the cash—This option is probably the least desirable, unless you’re experiencing an immediate financial need. Taking the cash now will reduce your retirement savings. Plus, you may have to pay taxes on the money and potentially a 10% penalty if you’re under age 59½.  

Ultimately, the best option for your 401(k) money will be the one that aligns with your needs and goals.